Basel III Could Impact Credit Unions

Under proposed Basel III guidelines, credit unions must treat shares members can redeem without restriction as liabilities on their balance sheets.

In a two-hour World Council of Credit Unions webinar this week, economist Glen Westley outlined the impact on credit unions of the Basel Committee on Banking Supervision’s latest draft.

Although the committee has focused on the role large banks played in the economic crisis, credit unions and other financial cooperatives will likely be included in the mandates. The key will be managing member shares relative to capital requirements.

“In general, Basel III narrows the definition of what’s acceptable and calls for more and higher quality capital than Basel II,” Westley said.

The new guidelines propose adding a capital conservation buffer composed entirely of high-quality capital, a countercyclical buffer that would affect institutions whose credit growth is considered excessive, and a leverage ratio that offers protection in case financial risk models prove faulty.

Westley noted shares a credit union can unconditionally refuse to redeem can be treated as capital that can remain with the credit union in times of financial trouble.